MMP - Earnings call transcript Q3 2020 | Magellan Midstream Partners, L.P.

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Operator

Greetings, everyone, and welcome to the Magellan Midstream Partners Third Quarter 2020 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded Friday, October 30, 2020. I would now like to turn the conference over to Mike Mears, Chief Executive Officer. Please go ahead.

Michael Mears

right. All of thank financial us for results, year other and Magellan's to the for and quarter you. third our topics you hello, today joining discuss full Well, to interest latest outlook

outcomes impact we Magellan, current making statements be Exchange judgments factors be could Commission. regarding started, management Securities are but statements could by forward-looking must you the as remind Before that the get different. based of will Such the actual defined future performance and I materially on that our

You the our Magellan's review own and risk should information factors about discussed filings form and in future opinions SEC other performance. with the your

You X new may issued that morning. have Magellan news releases noticed this

take our to for Magellan, is financial results we which are safely reliably years reporting for many website. only we that deliver now the very products not available the addition lives on also world in petroleum beneficial is everyday to our our to responsibility to sustainability publication new come. inaugural definitely not the our but report, quarter, nation our In of and Sustainability and and essential third seriously announced the to

expenses, notable higher profits that from commodity and slightly the recognize exceeded practices, our hope refined number be interest results try of industry margin, most related nations results third solid and our find move With that been in a growing transparency including and year has and continues to earnings. challenging products around one favorable as the informative. items, the a expectations resilient the the forward ESG to report said, Magellan's benefiting to by record revenues. lower of delivered our the and of stakeholder you Switching periods business better-than-expected in also economic be disruption. We midst pandemic quarter to during on a

latest review period I'll outlook in back to quarter versus more our our Our will financial discuss be answering questions. before CFO, third your results Then detail. Jeff Jeff? now for Holman, XXXX the year-ago

Jeffrey Holman

Mike. Thanks,

including operating DCF. As references usual, I'll distributable or making be and margin non-GAAP financial cash metrics, flow to certain

We measure. million to to we on Earlier release earnings per $X.XX have net $XXX.X basis a unit quarter of per these the $X.XX third nearest morning, GAAP their diluted reported unit $XXX million included exhibits metrics third income to or to of XXXX. quarter our this reconcile or in compared

$XXX.X range of activity, unit refined the primarily in quarter transportation mark-to-market current Excluding million $XX and we than lower combination $X.XX, was was million, pointed lower diluted $XXX.X products Mike of a which and release. Distributable XXXX to $X.XX second impact per in flow oil crude lower earnings spot quarter. with as shipments lower reported third commodity provided the for expected the $X.XX, margins quarter earnings of adjusted out, volumes, million cash exceeded which, between the the due quarter our

drilling also travel the by as hardest about and on the for activity million. restrictions pandemic pandemic $XX volumes. and economic related and the hit fuel segment of impacted So of that our turning products the of third as with generated from expected $XXX quarter $XX refined a about period, impact segment. XXXX in products most decreased and while revenue remains terminals also resulting million aviation the transportation Gasoline lower versus negatively operating of decrease distillate decrease XXXX, first the margin Refined by to million activity

products system period. seeing XX%, the volumes lower declines a XX% and growth the were third projects, of as quarter about than XX% overall refined aviation Revenues combined, respectively. growth Including fuel distillate were with of volumes, lower decreased result all XXXX for product impact quarter the These X.X% Third XX% tariff gasoline, in XXXX XXXX than and of by average of favorably rate. about short-haul base projects, sale marine declines the XX%, excluding partially impact lower earned X higher by into quarter fewer products also X average increase of our were refined first well went as movements, as this were which rates, ammonia in by late impacted tariff the XXXX. which of that terminals the effect year and of offset July a decommissioning on

decreased quarter margins of offset Hurricane $X.X XXXX unrealized to to related our volumes increased gains third mark-to-market expansion contributions decommissioned as between on compared completed Refined We sales Product quarter Operating by which due throughput that and higher approximately compared as efforts of partially third to not to quarter in versus operations Houston-to-Hearne of including by terminal began the also to higher late XXXX, do year. year reflecting $X terminal periods, DCF, venture, due coming XXXX. the as equity operational marine offset insurance products or assets lower joint to the in benefited the our partially expansion million during income gains optimization decreased from related earnings our joint $X.X during I related expenses. operating recently project costs quarter venture, from operating absence affect lower million expenses the last first proceeds million moment in due to calculation the Other growth to 'XX spending product quarter, as overages our by online West Pasadena refined a which Powder quarter became part program, prior favorable Texas projects, in that in fractionation which to began losses $X.X East business segment primarily million lower activity contribution activities. less and products mentioned the third the Harvey. offset hedges, sold partially of due ago well well for a reduced primarily our integrity XXXX from the cost-saving our decreased the received partially Springs

our to oil now crude segment. Moving

on day the XXX,XXX third current averaged of per million Third operating $XX Crude to in was Longhorn Volumes day terminals $XXX.X barrels slightly than lower XXXX. quarter in quarter. XXXX. and per quarter quarter oil million about barrels decreased third of margin XXX,XXX transportation revenue the compared

customers As tariff rather largely the in quarter differentials remainder are the dynamics guidance supply meaningful spot in note offset activities own given I'll revenues our it that product given expected, to to the their on our current all will continued those margin our shipments, decrease future. levels forecast beginning for at activities differentials reflect include volumes that we unlikely period or and we've are buy-sell Volumes continues and marketing our than its the to the not near revenue that transportation earning of spot our widen committed XXXX while our near on affiliate for uncommitted affiliate the assumption related quarter. commitment to any to reflected agreements. with third-party currently their not any our do ship marketing Instead, during commitment make a and from do rate. are ship in demand margins any ship of the affiliate continues at activities currently pertinent customers levels. posted just where this in anticipate year, movements to third-party currently marketing expecting barrels Consistent Longhorn we our nor third-party marketing

September XX,XXX on XX. Longhorn approximately that commitments barrels on set of day expire to were recall per may You

long-term between particularly, As the balance we and contracts. now, some is have capacity current noted for not and environment takeaway production of current time very the new supportive

between optimize buy-sell differential we So primarily turned entering marketing activities to and high shorter-term the by with prevailing from Longhorn continued Longhorn into Houston. utilization encourage the customers by to driven our affiliate price arrangements margin we that utilization pipeline on have earn as of [indiscernible] anticipated, will the it and

decreased system XXXX, access now the from contract Houston our Turning other XXXX to export in with for to third quarter the joint revenues. Reported oil crude venture distribution Seabrook versus significantly of decrease on resulting way volumes terminal. third most change in customers our the quarter

we system, transportation revenue. change last on call As reported offset terminalling higher lower our in quarter, volumes results discussed by distribution on our simply this

the were impacted increased Houston of Our oil were Crude million a were joint result barrels by of lower pipelines. volumes as day period between to oil barrels well XXX,XXX per any rates receive BridgeTex BridgeTex earnings using our $XX continue $X partially barrels during in day XXXX. lower the equity we compared quarter. no per line due operating and that per tender to from due a current in offset scheduled negatively relatively primarily timing by Crude to in XX% remarks barrels barrels barrels existing period expenses the receipts anticipate overages. These interest higher credits during were lower continue in as the BridgeTex declines earned at of XXXX day Longhorn, barrels Saddlehorn prices BridgeTex XXX,XXX quarter, we and declined remainder in storage lower impact volumes year, decreased integrity offset million sale as day rates value on results first periods. XXXX. of shipper spending utilization lower costs. uncommitted primarily equity customer the our favorable increased our committed guidance in the spot Consistent either commitments. the less on with average of per while crude the XXX,XXX primarily Otherwise, earnings lower of as also the East for XXX,XXX regarding assumes and the on of other our quarter asset to to HDS to volumes resulting Saddlehorn of barrels product higher operating the were to the oil period venture by during our track spot spot or during average to earnings continued volumes or previously volumes of compared Saddlehorn

marketing period a the mentioned oil for margin period's activities we affiliate million the the as from result unfavorable product to earn Finally, to conform margins of to XXXX current presentation was transportation reclassification of segment previously. the crude to $X.X revenue primarily

certain $X.X which million as assets forecasted to variances. the due the impairment to primarily expense primarily due result quarter expense current third lower now compared primarily into $XX.X lower interest our of due compensation G&A decreased and Moving results. amortization quarter incentive higher the period reflect capitalized ongoing $XX.X as to higher in lower construction well XXXX million to placed impairment of interest depreciation-related Net service. a lower as to increased other accruals, activity. was during million terminalling expense recently 'XX assets Depreciation,

our slightly a growth made by partially finance We primarily also average projects, period. offset had result the to a XXXX borrowings as lower rate average to compared higher of outstanding debt

million unfavorable September party. third due recent and was our project our average outstanding outstanding to the additional disposition was interest during was rate X.X% that Gain weighted related Basin quarter, recorded At debt Delaware to $X.XX to an discontinued Our assets a debt billion. $X.X approximately year the pipeline on long-term of billion. XX, total in prior average sold $X.X gain was was

liquidity. and metrics Moving to sheet capital allocation, balance

we an X.X X at quarter, That of at $XXX $XX.XX, spend year-to-date total total for million. a nearly the million $XX repurchased purchase During a units units the number cost total units of of to price million. of average brings million repurchased

As we as factors, well of unit including in not of have market as noted spending, repurchase conditions on capital and depend units. sheet expected balance the of price consistently the program, and number timing, price our trading excess metrics, common repurchases volume expansion available, to: will legal of a and any but requirements limited our our cash discussions regulatory

available liquidity $XXX leverage, XX. program and paper drawn to million have to facility commercial $X credit September terms of with our us mid-XXXX, we through on at billion In continue

the X.Xx the With until to our for turn back over and ratio bond below at that, of remainder strong call next the year. I'll the limit end XXXX, for quarter, of long-stated discuss guidance maturity Our at Xx. our isn't compliance well the of Mike purposes leverage our to remains

Michael Mears

Jeff. Thank you,

of was range. our billion, the for near revised end may we DCF the have midpoint our the to you previous we year recall As of XXXX, $X.XXX guidance which forecasted

social demand levels demand While range DCF to that quarter to is we for experience for remainder we still remains unclear, guidance bit refined normal provide XXXX trajectory of DCF the a trends areas year. of guidance generally the the recent relatively new demand products our refined since a in material that products stable XXXX product market this refined our restrictions elected historically continue not recovery appears moment. and the the assumes more no Therefore, it that forecast at

by push closer lower that low Texas be projects, By estimates distillates we base lower we by a rate. fourth XX% movements, product, volumes, gasoline South off and fuel represent very These aviation also our Specifically, volume XX%. quarter system expansion to expect of XX% XXXX. which fourth base our down X%, short-haul that the which benefit more be recent a the business quarter to with at estimate moves exclude supply will of of than excludes

And South lower demand this We shipments fourth environment. observe XXXX. our you about The have volumes from period. the to to also seen in Texas we recent than incremental lower volume projects, be systems factor volumes product quarter interesting our expect in during growth all-in and Texas the dynamics once have of refined on XXXX current system been the X%

Our more to so return are regions to rural everyday our whereas historical their back pre-pandemic fuel below be slower to metropolitan demand and have to been activity markets basically levels, continues work, school levels. larger

We have due ramp experienced a for to also our conditions. to projects current related slower market volumes expansion

may supported may take-or-pay we payments the have deficiency some cases, by strong to commitments future. you these counterparties, are recall, so in projects As us due from in

the to remainder we oil the crude pipelines, in volumes our continue year. with assume line generally of for shipments For committed

than blending for with averaging expected hedged for about season. blending our fall remainder the the XX% our more of volumes of activities, Regarding XXXX, we liquids $X.XX commodity-related gas have margins

As expected to is started XXXX about of hedge for early blending $X.XX year, also activity we a typical, have with spring our average hedged margin. XX% at next

that savings process and Magellan improvement an opportunities off recall identify year last may organization. the to optimization kicked cost effort throughout You

have we that million million During by are repeatable, believe efficiencies about benefiting of these identified year with the XXXX, we from $XX about efforts. current $XX

that additional costs These million we to savings annual to organization. and process We reduced are business through evaluate across believe leading drag-reducing by are better realized the and primarily could improvements power being areas $XX and reach improvement, optimization or that are for agent continuing more XXXX. savings

We making of but manner, Magellan workforce a improve always where voluntary natural retirements are the to and are through opportunities we attrition, targeted in in taking has also adjustments areas certain can. company reductions. modest operated lean we

expect distribution in indicated, XXXX, approximately on level Magellan Based the at current for previously generate XXXX. As X.XXx for more quarterly the than of maintain of guidance to we resulting of year. excess distribution DCF $X.XXX remainder in intends million cash to of the our our cash billion, $XXX coverage

Although guidance historical follows current distributions payout which target investors. to and maximize we understand this important distribution strategy on to for level. with specific XXXX to a investors the value approach, for that payout focused do consistent intend We point, provide not currently to year. surety remains is number is current significant executing plan of of at XXXX next to our we sustainable do Magellan cash believe our long-term our our our

and profile. investors via our In distributions, disciplined to quarterly that addition value to meet also by to risk/reward intended returning incremental we cash deliver investments utilizing unit our repurchases

investment of healthy equity As all Jeff evaluate actively additional purchases, as although purchased million that of the quarter mentioned, sheet. ensuring have we recently maintain investments disciplined to $XX balance backdrop during value third And generally, seems to sentiment continue we historical our good-returning with continue approach. to the low-risk will still our and turned expansion believe our against add for company, investor projects, by we Magellan's demonstrated

$XXX million $XXX are XXXX. projects approved for spent in estimates already $XX million million spending XX this through that September expansion and current of Our year, with

attractive, We in anticipate relatively that years. the continue term. may the reduced spending approved projects capital potential clear, several to growth to next smaller over But significantly programs evaluate we near few be be

million. instance, For our near we be in actual spending range approved growth we of potential that likely $XXX include these may That in the projects the term, comments. if prepared would XXXX to be expect the concludes

to so turn we're call operator, the questions. ready for And now over

Operator

Jeremy question with [Operator And first from JPMorgan. Instructions]. line the our comes of Tonet

Jeremy Tonet

And at you far wondering as how to consolidation just as here. that seems think potential mature the like wondering it -- industry this point. was just I continues unfolds

a recently. number seen you've side, of upstream the transactions On

thoughts could just to evolve, than Magellan and upstream coming wondering, is guys, there's think need all in how do position but any could a not many you how wondering anything peers not the side, have how midstream on business? seen On might granted the have that there. together much consolidation stronger you any from imminent about as impact much. we you that And midstream And

Michael Mears

other. I likely one is appropriate pace think the that appropriate slower. don't or be I But guess of midstream that upstream I think I say thing drives upstream, I Obviously, in -- midstream. and a it's the consolidation I necessarily would M&A midstream think don't first think some the in it's be correlation is Well, the there will it's M&A. the between and will I think

Speaking regards strong balance for to some us, relatively healthy and I peers and our mergers. you different with mean, in a we sheet, we're evaluate mentioned, a frequently combinations of slightly And than as stable other business profile. a position

are we that would all a balance So of balance we merger of urgency to strength strength, you and We as Nevertheless, consider evaluate that maintaining profile in of elements sheet earnings do there's sheet the keep not targets. potential that. such And the that. variability critical an all mind evaluate. in impending the

happen that what won't see be But regard. tell so at but the any there's M&A not know midstream pace wouldn't peers you slower the than occur go few much if that over And I I all. I surprised of probably at you I that very doing, would we're transactions can't next further rate. in meaningfully to a or so. year don't overall, And tell may -- to expect I are active my

Jeremy Tonet

overly then buyback Magellan that. tools, the different about kind unit -- unit look be these wondering of top you there's how depressed And the address it. to a just the something at seems at case think response the Got think there. I Namely, made that price, if And your levels. like you separately, at what list it's of to would be

liquidity equity private gives ever to make Or reduce want buy to how obviously these the go units is kind assets and ever those, given just to but of there uniquely your to distribution levels? increase sense Just wondering to cheap leverage, back think that? it trading You more the create after to you sell to don't would ability an takes. about

Michael Mears

you hit buybacks. Well, pull on I levers to possible increase you mean, can the

I a think doesn't little the Xx bit we've always want we below sheet which well won't leverage compromise to up back we're while don't creep may target and going mean keep back stated. we to coverage balance our our it buy we're but to compromise units, sheet balance buying units, not that

year. that an The assets improvement allow can and cutting free happen more look a business equity. market to first We which on option. value is this our basis, to at constantly public attractive execute that can did not strategy and that, continue we and going for on the trading do but back to case-by-case an ours, we going will units. we a It's on think that's our core marine our just regards With equity, And never back we'll is we there's that we We will. not over I'm a to such that list sold never it. of purchased not evaluate private cash to on flow We say -- the thing distribution at list. the buy to terminals, it's that. be time, Selling earlier arbitrage if between buy I'm moment.

We aren't planning to do that.

that. I do at think a do. good have not At point whether planning to do to that. to thing not a investors we're or may this in it views leave time, just that's different to I'll thing good

Operator

Our line next from of with comes question Richardson Truist. Tristan the

Tristan Richardson

leverage. Just buybacks questions the about previous versus to build on

production a an capital underlevered the have in there suboptimal. guys is becomes maybe floor suboptimal -- that might don't Mike, perspective? the of sheet level give you cash you free where leverage be could you that a seeing exclusively us on sense structure some kind leverage, of from a last in in where or where necessarily mentioned think just you is accrued Is balance flow the and interest I call,

Michael Mears

to for -- don't we which and now. -- Well, volatility floor have a you right is think leverage. on in the we're the in I for answer this the I what we environment, a be don't given Xs, good a probably market we consider low uncertainty in good really the place we mean

obviously, leverage as which So some cash. room equity. growth -- in a to $XXX I million though cash can buy borrowing feel our excess -- back can exceeds got this environment ratio tell, year. not got you we're we we're around free like we're capital year, spending we full that this we've mean on do flow mean I we've --

so And purchases equity incremental leverage. increasing are

very, in doing very of little that So careful a regard. but we're bit that, we're being

if us a up do to You're ramp certainly in much we've going a our level but big target. the time a may because stable just more to step market. it got take that just to in We practical current not feel we're doesn't see room Xx environment, right to of that over

Tristan Richardson

helpful. Very the just And Great. then on quick side. one follow-up BridgeTex

you a past earned about expiration? guys over I the a into credits with expire talk medium previously guess you volumes customers talked from just near then, have couple see of guess, were kind banked to years could you level, about just future I of I continue quarters, And think Do at credits. that high where credits and could term? over higher? dynamic eras previous

Michael Mears

don't all, just where But credits in close extent haven't customers are those exhausted. first mean to of credits be the have me not but periods, getting the it's Well, when to credits that into last to to those expired. I'll be generally. expire going using I credits exhausted, point answer are are over they are going obviously. in time those To do front as to schedule credits current of going I perpetuity.

Operator

Our comes the line next from Suisse. question Dounis, Spiro Crédit of

Spiro Dounis

roughly these has Is the that you in your historical $XXX profile CapEx this Mike, expectation it million the next higher of Any range? to -- Or be projects subjected for what CapEx mentioned on return to like? threshold? been sense a year. return typical looks

Michael Mears

because to evaluations is, it budget that. low partly it's to as of that be threshold a capital expected We're holding right now. is of that's why higher And majority project the our as

capital -- we're on. very We're to So that, we're we're deployment. return. what's of It's -- the not it's capital the with certainty expected also requiring that to be careful going focused going and just

in an that be on -- speculating to clear on number, we're we -- to done want we if yet. be I'm million some $XXX projects, trying that not mean these approve which The million the for clear, $XX $XXX next I totaling And is is comments potential. intending are my do not it's incremental I of projects and approved capital haven't us projects, to year. very clear this million that. just environment only we be to So that's to

they may we're But be high-return, not focused may low-risk So or going happen. very to on projects.

Spiro Dounis

Appreciate clarification the Understood. there.

Second question the on just FERC.

entering about know you. liquids and through on talked regulated far the close is side. affiliate proposed guys to industry? what to It FERC contracts, provide to buy-sell pipelines. I that agreements to topic into on looking like looks you specifically your when You some more has impact it the on so FERC maybe affiliate any of is there the views the Can guidance comes some potential talk

Michael Mears

We're don't into FERC, their really comment, when to the -- talking you're we want file due. I on our it's construction. to Well, only get are new notice if for contracts for And our they're recent all that. about on going here really focused affiliate comments comments

buy-sell I going in comments to activities our case, pipelines, area think in on addressed, maybe want not contracts supporting about right be areas. and our I comments interstate provide should commission's the only affiliate way pipelines. be speaking, generally are in how occurring that other intrastate though some thinking and to the clear clarifying the do we're

not they're So FERC jurisdiction. under

Operator

Chen, Theresa from Barclays. next question the is And

Theresa Chen

of especially color recent you Mid-Con? uptick your the data given can demand the in service points live some provide across Mike, on First, areas

Michael Mears

Coast rural the look most less there's fact And COVID-related pre-pandemic of levels. to also with have markets. I markets to have harvesting to, that so one is think you is, couple a restrictions the folks attributed mean logistics the at continue and a markets all that look and metropolitan impacted If we our serve, we rural area, by the to are coasts, in And in the activities to level crops, restrictions been lower Coast. think things the shutdowns, serve think, larger I the that continued that Well, and the have of here in states crops around been West comments, our areas, through of the mentioned example, economy we the very I associated we as of have the back East planting I essentially our than generally run. for and the portion the that their rural and agricultural heavy I needs or pandemic.

in you've demand so metropolitan economic what Even reductions you've those as and be guidance, our our just West to And are activity less with the I last is areas, seen in clear, to regards more major East continuation couple still largest And reductions areas. the said, in mean, though those we've guidance areas, the on in our than what therefore, Coast. in really are think had months. I a of of seen urban I

into possible. forecasting second in And clear and certainly we still because that's too, not say, built of to it hearing projecting really And something we're on serve, any not that, aren't haven't we're seen, flat. significant markets be we that we the but risk in be anticipating. is So we've lockdown, a a October. and to an We're improvement which it guidance of in what we rumors projecting from demand the September wanted

Theresa Chen

this upstream on of pipes, amongst does up have your your commitments one it following acceleration anything? push not to the term, you consolidation if assets in And impact may And recent producers. questions longer earlier Understood. of volume consolidation. the immediate, minimum the about many related given your just across on the change talk supply potential given Can the

Michael Mears

Basin very with you And And Where I a is at we're in macro pipeline which just to to with What's the perhaps expect flatline the contracted mean, combined the again, -- both look that specifically change creditworthy of the a to Well, would I these the potential impacts To companies, substantially operating -- are future, think have entities the with I to net basins difficult at crude is few standpoint. physical production going trying going Permian But a I outside have years we our parties. to an short It it you're to Permian of time. the the export have what does the to really whether the grow want have since Long in future replace and positive. Houston, those level barrels is not project in it other to healthier the the or I that we're doesn't that's to healthier center. all, right. Permian first next some contracted impact continue of to if be in on on do. go? is to over at the in Houston not. very We term think just what might an Difficulty] position have to strong more and oil the or entities again, it decline, production a feel barrels slightly these really we these combinations to look trends Permian like are that movements demand expiration want term, basin? think on of production over dynamics, extent contracts of and it [Technical combinations go pipes create and from expected us in

from position macro So we a a good we're standpoint. feel like in

at And so I'll it leave that.

Theresa Chen

term, and the report the long sustainability energy thinking on assets Magellan And the heels of your it. just potential Got can in over and projects lastly, transition? about your how participate

Michael Mears

ethanol should we're of those with all to regards diesel. liquid the renewables is areas short-term blending and -- blending actively say, the all us there's blending. couple occurs ethanol of and like of term The the we're renewables, to in at terminals. things Well, biodiesel in of ethanol Most most the evaluating And well, short I on. focusing a -- relevant renewable expansions

Biodiesel time, to capabilities we're it really more to our able That us. looking more looking the advantage today Midwest. to looking be pipe, diesel. create blend into stream that's dated. in Those at take we're also more the that. to There's consumed of terminals. going diesel around positioned the the happens be We're for blending at And renewable renewable over to we're can no opportunities the that. and longer are expand change create at revenue at projects which So efficiencies diesel will transportation and in

also and an but term, we that. our improving to purchase with are really actively not capabilities so on it determine there, effect, looking hydrogen but we certainly understand assets those from longer started or indirect of you energy there's are to short-term what that's working sources. are transportation us. at the renewable opportunity of we've sorts for and actionable those opportunities looking our we're When for available. renewable coming That's it's But the near-term start nothing transition into things work We if the things regards prepare of can power

Operator

line UBS. Gershuni, the comes Shneur of next Our question

Shneur Gershuni

clarification here. Just a few for me questions

willing First modestly how off, you're about Tristan sure of that liked be just thinking that, understood to I I you're to your in to make response is And as is I terms negative if on buyback leverage. want that flow characterize a the to response in the of your cash in opportunity him? is there way deploying to as terms free Is long check. a leverage fair

Michael Mears

it. to characterize way think a that's I fair

Shneur Gershuni

Perfect.

front, to just CapEx about was $XXX the One, you response you I be to What Is clarify, you -- looking the are return, have guess to that as here. million kind to need Okay. not $XXX projects deploy in recognize from be in also? this contracts secondly, capital questions steps two then this or for stage. And thinking to And we well of that you're the of FID wanting deploying million? to a talked signpost previously, worth perspective? about need Spiro -- that $XXX to careful secondly, on rigs about of the then a at congestion I million macro it now environment. and incremental signposts your it's potential

Michael Mears

current Well, if XXXX, million. for first total be $XX to we it's what $XXX projects million. we plan likely our on, roughly of expect is for would approved we're And your question working be the approve backlog first XXXX capital on then the all, from of

numbers the million the are regards risk. So different, that projects it's of regards the are your returns the project the at. looking about. question, not where I'm an and it million we're from, around With talking and came you incremental to mentioned we're to second is variables mean, every but $XX I $XXX sure different those number with

really our eliminate we There's within secure those by are -- of mean contractually. I some economics where -- control. the Some those would the projects or risk contracts other projects, of

For instance, business. costs that improve we our blending would projects around have the logistics

where that the when we locked-in cost So can would know a blend that, I a improve. would that's have a it I to logistic we pipe costs if we and than structure. like $X.XX that can get have $X.XX economics. trucking a gallon mean to the be that we it project rather we into to something for absolutely improving know to facility facility moving capture gallon, have we that contract cost don't butane that say that so so it structures can well, lower And that by We a that.

kinds at. So of the we're looking those things are

Shneur Gershuni

question previously. Yes. just only here. I Okay. continue around $XXX And is million that what then on recognize maybe you FID-ed $XX to you more million were My evaluating. had the the

that Just year, million. year, would comments this year. identified would a execute $XX -- $XX million you show you felt starting $X you've to X wanted you If $XX your last for million which another about that. point. then costs, years identified to about how just into Is gave probably clarify million I incremental And would get $XX million the interesting some correctly, mean over that place started you did up from of that plan next next heard I right? total an I could come

Michael Mears

accurate. That's Yes.

Shneur Gershuni

here. final one then And just question Okay.

there wondering some your you. that third-party up if opportunities color -- I and opened around you forth. and there's was us some whether for You've whether just can pricing the an so for hubs there's give opportunity

on give can you color that. If

Michael Mears

what Houston that for think me you're East for referencing trading, some our But call, up in opportunities. distribution point system. the volumes wrong, is that That's Well, our continue to long-term And I'm the are on everyone drives oil goal storage there opened our pricing get we we've third-party point market system the if I benefits such correct -- associated to the where crude that incremental much in the us to the that on for opportunities through already volume on incremental future, is to captured and the of quarter with it will pipelines. grow that. pricing through -- it's our -- make yes, the and but more more liquidity that we've incremental It's going physical happening And some effective benefit. to contract, pricing the have -- useful the incremental the more more in contracts. the system. happened third It's is we'll not our so and creating liquidity be in that and can the customer-friendly really we through opportunity

Operator

Stanley Keith from Wolfe is Research. question next with Our

Keith Stanley

wanted year. regulatory to next just ask strategies about we I as potential move through

Just still next are double -- I forecasting down guess guys you digits volumes refined products quarter.

year line volumes? time just to a next And a closely would the the when think say, well volumes So filing case curious. on how some recovery or say normal "Okay, then the on this separately, process prolonged more impacts year? seek you that below Or we have criteria to need file through point?" case updates year, of of you'd case at next and status rate about quo, scenario, at FERC under stay from at a can this Any we so FERC bearish where rate we look potential

Michael Mears

those reminder, as address first market-based X/X to filing. cost So so your our to of are increase markets the making service a part of the without in ability have we question, markets about rates of a

increase per in that to barrel in not we as barrel miles reflected are cost not markets, to is so mile need being have reflected our our to. tariffs the ability costs we those And per then if increase in offset tariff, -- or our being

of mark markets are other -- at The the FERC regulated indexed, X/X index our level.

the a do service to so index, to rate. something file different of than we'd cost And have

rate that. look a for not early filing income does that to it's XXXX, cost so case. a evaluating like level and really XXXX that. in the pull really to such matter is are planning a what It's the are on of file too rate actually on deficiency We trigger we We're incented of at service a

possible think happens. We're not I that it's for preparing that. certainty. It's a

been These owner, under assets were fortunately, been in case, a in a rate the we've haven't Williams. previous case since We rate existence. in

not is last need it can not think to it. of we markets in not opposed all On that regards with some benefit take you we found experience cost worth see now. us year And a support looks really entire something initiate a the we're is that, point a large doing we of back and up to. decision your percentage waiting pre-pandemic and index are like feel back processes endeavor do areas at preparing bit. place We're It's that rural areas, A we're really our to to question, to one And you as make that if have if had now case. on But right and come those What -- the a large little to we're rate recovery. we how so levels. of lightly. and essentially it's to a to mentioned, have in I that the we with

destruction there is the depths few months the at of relevant summer really only the when were of really So we cost during a demand. for the recovery

And so large not But any for we because for haven't final filing turning we that out is we haven't number the to on the as whether that was. made a yet. thought making final as that decisions -- decision towards be recovery leaning we're on made it

Keith Stanley

I'm to how which stay I'm through think sorry, going rate about if ask the rate raised low on helpful. sensitive market I for products, year? rates, very know question, is, a guys side the volumes And to the we you how refined is That's rates will very be the Or increases X.X% similar it's next market-based to expect very Or can say, X%, larger larger also stay seek you is I X%? think, low? more that increases? those volumes rate I than, possibility year. think you do to this market and through for mean if raise tough systems a competitive midway would competitors

Michael Mears

over move, that since you volume, much say the to per to generally volume per been date things, our of costs. with less increased and how with cost, I if going our that is reason and tell experience more would it's they cost, you cost-effective we to raise costs fixed so compensate mile us locations Well, whether rates types that cost we've of adjust. And our is that to would our than the obviously, I that's or expectation the mean believe incentive to for have I don't your suggest would it's cost rates. which that of our fluctuate response mile. expectation But so happen. do but if we'll rational operating I happen their had they market-based large mile cost, able that's percentage same pipeline you're competitors now a are the cost would cost are I when the up. do, think to going have has likely those what's I think moving will per which barrel integrity most really same are don't doesn't, can't to barrel we've Because a and time. increase experience And not that rate not, to market have barrel such any -- have should what they is we it

Operator

from with Wells Satish Fargo. is Praneeth question Our next

Praneeth Satish

a shut the Permian, that could structure. think potentially industry more to is broadly, guess I'm in strategy wondering a merge a to I JV basically the the had And if you discussions on pursue? down pipeline another under volumes you've any move pipelines this and

Michael Mears

opposed I really answer all you first if be to I make or combinations the sense. we're can't a think time that we conversations. were probably when and third our can question not in even say to combinations tell repurposed. happen that parties that. pipes talking we can the look may to I are all optimize Well, pipes That's that will there those I on And about time,

Praneeth Satish

what start variable maybe we is get per cost to the barrel can I utilize space on barrels. that's guess, required taking space sense could of spread operating the the and so, wondering the comment your between spread approximate, minimum tariff guess, some this hubs. understand then of marketing is I moving you a But I'm the what And group Longhorn, if the and Okay. on I will is

Michael Mears

on near mean, capacity. whether variable the it's depending I fast not capacity is Well, costs a there's it's of operating or moving, whether range how near pipe

the all board. So over those are numbers

because That's a I $X.XX a low. was think $X.XX I which And a costs it's barrel range some some for the a operating helpful Midland give Houston tell is today, can can rates. pipes be at variable not barrel. to I think, you you within but pretty I -- to big flow of range differential that mean going that it's the range the I from range.

So $X.XX at it's that, there's the And a specific you a to -- right say because now like the low-margin I'm to a operating differentials. But I current barrel. cost I variable opportunity range. a margin want quote on when $X.XX don't such talking big a barrel

be any time. -- it's in somewhere range, a big could range pipe it's and So at in specific I that mean any point

helpful be going not So pipeline know would that know that, and for I since have our I'm to real numbers. you don't to you'd specific, quote pipeline-specific

Praneeth Satish

it current to No, understand on I based get spread. think that of helps a the just sense and just to

Operator

Goldman Sachs. Next question Lapides, from Michael is

Michael Lapides

I I actually One, is probably have Jeff. for think, two.

this I'm those little of kind field that of do between could couple what line cost OpEx. And see material Or $XX a I your back? I know, down G&A just expecting there 'XX? and in million, about G&A X that to savings that's versus understand months year-to-date just Just could the at in sure go make so. out of savings reduction to if look commentary then operating are. I mean $XX down, if operating trying further Are or I And year? how million kind it 'XX of think want some next in the on you don't for years are come or other bucket, you further parse will expense, that cost or bit you cost costs be?

Jeffrey Holman

Michael, of year. function of this some a Well, is that,

G&A a sadly. have so good lower lower is expense we're And a to example. comp going results, With

future So procedures our finding that. of project efforts. we're which of to we But also G&A Mike or of to DRA going are side, more processes for on then so things, necessarily at efficient optimization that's would the in a and of hope just the variance not operations power opportunities and savings and described, really, it's be of some as our efforts big and more kind a the part project optimization There as part there, into forward. lot

of revenue. Some are those

are those of Some margin.

are on op but expenses. there, the operational it's those primarily of little G&A Some a in side. There's

Michael Lapides

And what million $XX some then you're is you $XX so like down Got it. or by is out? take are million I you it come the understanding to time correctly? then of think that so -- Am Or year $XX year-to-date, XXXX? saying and you million the because can get for expense another come back does operating or you saying out

Jeffrey Holman

efforts -- couple we be that to we and year, in of this more think Yes. in We're we million save expect saying around up can area years. our a $XX optimization in see of $XX can million the from we

related to savings at expenses is and correlation this just mean some Some expenses the if look are of activity year. operating you the some the activity just -- there savings, I of between year-to-date, as well. throughput those

had expenses So year, we've is when a you this have an well. off year like like there just little bit operating as

capital alluded to on that fact this we we're we've but and a work the continue continue as for million to $XX grow you efficiency, year-to-date to to expect of Instead, many lower as fruits environment lean, that have we can focus extrapolating and the to look to of take million. So it optimization year. trying been we always that, And and on careful are and that. Mike see we XXXX try find. seeing we we that opportunities to be this little $XX seeing that into isolate in

Michael Lapides

question. Got it. And Mike, one

midstream at Board the what, maybe businesses like" going look a industries reduce one -- a M&A environment, dilute about improve would look therefore, kind different that's thanks?" others or capital but on metrics business kind asset about to dependent of within of "You but and the these you consider no energy, things is know off where know But that is ways of it. you but the of kind at types price, look "You the trying fit when and tool my and just that's hard within M&A types I a and as asset low as, return to and the mess look that just difficult crazy you kind say, that's what general, what, -- type are times, different you business risk/return would to But use risk/return think yes, my versus, when I'm you know there Just what, it through right of when obviously, table" types asset think M&A to thanks my lower-quality would costs. about you all our just that and fits think price "Hey, some ones would at are that, say, are and mean, and we metrics "Hey, mill"? that's are what versus in the across

Michael Mears

just entirely like commodity be you fee-based like I sensitive, to that's process they attractive companies peer more the the mean, are think that stable, mean when to there say would And businesses us how use with I exactly I I primarily volatility that works. Well, business more two described say, that. are that, more a less than, extremes. have

mean that who are going us business be for efficiency variability won't that you're you processing there's need -- you to you to generally duplicate to at set if opportunities speaking, much very businesses, similar from of Now less set like on need less us typically have don't example, the business doesn't business you processing a we higher whole skill pipeline need a hurdle is for And cost doing things know the business, the but interested it's a higher keep or well, is more savings look mix, the versus both a you're savings. opportunities for buying, different higher whole cost to the Whereas skill people business and because business. for that. if business so

those those things evaluations. you but also just the have it. go mean issues. So sheet all I Generally into are -- part of balance

You have corporate structural issues.

the location I of things geographic into You all of have it. those go assets. mean the

we some And companies fit don't a in good mean, think good others, interested companies so be we're interested be there's that a fit. the answer short that would would there think less we we than others more are in I than and and is, are

spend this. And so of that color we're is we our evaluating time when most where

with you different I just I I said a way. said. So agreed just think what it in just

Michael Lapides

I it, understood. No, appreciate Mike.

Operator

Walker, from the line our question America. comes of of And last Derek Bank

Derek Walker

commentary distribution least quick and the my questions I'll been products you maybe sort mentioned ones. of commodity X.Xx of of prices have sort should stabilize or 'XX? we In perspective? an some guess just but of see that at from ask Most return of about historical that of target I Is Is to answered, time 'XX? once this think release, in how cover refined back happening press that a couple demand you levels. your that some event half

Michael Mears

be on is lives going going when as going view it's a their who I assumptions. to we're at which to many mean, When with to that the tough asking with think right. build landscape not when the I a And it I is to back aren't vaccine them mobility? people has I yet. just of for lot builds When we XXXX essentially, be that, But our probably anyone prepared We're to plan. a normal to and to lot the a available? provide you right going get assumptions, going look Well, is subject guidance, still a you're true projection normal to XXXX that probably that's When mean going make question give all comfortable widely of dispersed? feel to are to now, XXXX be mean when you I uncertainty. answer. going

prepared not you today. an to that I'm So on answer give

I back to we at normal. some is, will be think what say point, I would

some give about talk when talking we release, that XXXX, it's point, more now, we on that year if guidance right January. if I it's the and And will know next we're in context -- we that about be. in press it's when But time. some don't in we'll so the of have color or at what's if

Derek Walker

a Got then just it. clarification just Mike. point, maybe And last,

the levels of kind and impact. feel pre-COVID still You sort urban of talked back the about to areas areas being rural

the you referenced, being we numbers quarter So think fourth as areas as far as the as urban really should quarter year-over-year as that those numbers? the just about far

Michael Mears

being I the areas offset back we're it's total you Because doing the are No. mean the numbers worse what at by providing, essentially, into -- areas numbers. so is the current urban are level. can rural -- read and that than Those

those numbers. what essentially I right reiterate are So those we're And I'd seeing total now, again, are numbers mean.

it same. we're now. We're our So not and those improvement the experienced, quarter in fourth are of seen actual actual -- our or range But expecting stay say, expecting in from to September what we've October. kind the right

I answers question. so And that hope the

Operator

And Mr. have. Mears, it the over you. we back those are all I'll turn to questions

Michael Mears

thank interest And and everyone, for soon. we All right. appreciate will continued you, talk in you Well, we time Magellan. today, your your to

Operator

our and conclude great everyone. of for Have that and you your rest may participation, call line. We you day, thank gentlemen, a Ladies for your conference does disconnect today. your

Magellan Midstream Partners (MMP) 30 Oct 202020 Q3 Earnings call transcript